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On The Economy

January 16, 2008 — Dr Esam Omeish

The gap is growing between the ‘haves’ and the ‘have nots’. We should look out for the least amongst us in this changing economy. This is a very interesting article in the Washington Post about the dire need for economic reforms:

In a normal recession, the to-do list is clear. Copies of Keynes are dusted off, the Fed lowers interest rates, the president and Congress cut taxes and hike spending. In time, purchasing, production and loans perk up, and Keynes is placed back on the shelf. No larger alterations to the economy are made, because our economy, but for the occasional bump in the road, is fundamentally sound.

This has been the drill in every recession since World War II.

Republicans and Democrats argue over whose taxes should be cut the most and which projects should be funded, but, under public pressure to do something, they usually find some mutually acceptable midpoint and enact a stimulus package. Even in today’s hyperpartisan Washington, the odds still favor such a deal.

This time, though, don’t expect that to be the end of the story — because the coming recession will not be normal, and our economy is not fundamentally sound. This time around, the nation will have to craft new versions of some of the reforms that Franklin Roosevelt created to steer the nation out of the Great Depression — not because anything like a major depression looms but because we face an economy that’s been warped by two developments we’ve not seen since FDR’s time

The first of these is the stagnation of ordinary Americans’ incomes, a phenomenon that began back in the 1970s and that American families have offset by having both spouses work and by drawing on the rising value of their homes. With housing values toppling, no more spouses to send into the workplace, and prices of gas, college and health care continuing to rise, consumers are played out. December was the cruelest month that American retailers have seen in many years, and, as Michael Barbaro and Louis Uchitelle reported in Monday’s New York Times, delinquency rates on credit cards, auto loans and mortgages have all been rising steeply for the past year.

[…]

FDR’s long-term income remedies included Social Security, the Wagner Act (which made it possible for many workers to join unions) and public works projects — including a massive electrification of rural America. A comparable set of solutions today would include the passage of the Employee Free Choice Act, which would enable workers in nonexportable service-sector jobs to unionize without fear of being fired. It would include a massive, federally financed program to retrofit America, creating several million “green jobs” in the process.